Q: How long should I keep personal financial records?
A: If you find yourself drowning in receipts, paycheck stubs, old tax returns and bank records, you might find a great deal of relief to learn that you can likely dispose of a great deal of it. However, be sure to retain several years of tax returns, statements of investment accounts and retirement accounts. When you do dispose of financial records, make sure that they are destroyed in such a way as to prevent your information from falling into the wrong hands.
Prior Years Tax Returns
Most CPAs advice clients to retain tax returns and supporting data for at least the last seven years after the original tax return is filed. Some CPAs go as far as to advise keeping old tax returns forever.
You generally have 3 years from filing your original tax return in which to file a claim for a credit or refund. The IRS has an additional 3 years in which they can levy additional taxes on you. You should keep federal tax returns and supporting data at least until these periods of limitations have run out, which is generally within seven years.
Tax records relating to real property should be kept for as long as you hold the asset and for at least seven years after you sell, exchange or liquidate the asset. These property records can help you figure appreciation, depreciation, amortization, or depletion of assets with regard to the property.
Investment Account Statements
For investments, the annual statement is the one that counts. When you get your yearly statement, you can toss quarterly or monthly statements. You might want to quickly glance and make sure your annual statement truly reflects changes of the past four quarters.
You want to keep any records showing your original investment in a fund or a stock, for capital gain or loss purposes. Your annual statement will tell you the dividend or capital gains distribution from your fund or stock. Seven years after you file your tax return showing a gain or loss from selling securities, you can safely discard those statements.
Retirement Account Statements
You should get a new statement on your retirement accounts each month or at least each quarter. However, the annual statement is the most relevant. Additionally, you want to hang onto your Form 8606, your Form 5498, and your Form 1099-R.
Form 8606 is the one you use to report nondeductible contributions to traditional IRAs. Form 5498 is the one your IRA custodian sends to you – it is sometimes called the “IRA Contribution Information” or “Fair Market Value Information” form, and it usually arrives in May. Form 1099-R is the one you get from your IRA custodian showing your retirement distributions.
In Safe Keeping
There are those important documents that you should retain in a fireproof home safe or safe deposit box. These include your will, life insurance policies, retirement plan documents, marriage and birth certificates, divorce documents, real estate deeds, military records, passports, social security cards and family health and immunization records.
Count on Your CPA
As you start your adult financial life, it’s a good idea to get to know your local CPA. He or she can help you understand your choices and make the best decisions for your financial future. You may contact me at (409) 892-0233 or (409) 883-5306. My email address is brad@ekc-cpa.com.
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- In Safe Keeping
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